Rate cuts may boost demand amid condo oversupply in Metro Manila

Further rate cuts by the Philippine central bank could help spur new residential project launches and drive take-up of existing condominiums in Metro Manila, a property consultant said.

In its third-quarter property market report, Leechiu Property Consultants (LPC) said the inventory level of condominium units in Metro Manila has reached 67,600 units across 510 buildings — “the highest since the pandemic.”

“It’s an oversupply of the buildings in the market at 29 months’ supply. (Developers) have been slowly launching new projects,” LPC Research Director Roy Amado Golez said at a briefing on Oct. 8.

Quezon City and Ortigas (plus fringe areas) have the most number of unsold condominium units at 18,000 and 13,500, respectively.

High interest rates may have dampened demand for residential condominiums in Metro Manila. LPC said 6,885 units were sold in the July-to-September period, “close to the 7,000 level for the third straight quarter.”

The Bangko Sentral ng Pilipinas (BSP) had kept its policy rate at an over 17-year high of 6.5% from October 2023 to mid-August 2024. It reduced the benchmark rate to 6.25% at its Aug. 15 meeting.

“The interest rate levels today are still at elevated levels, at 6.25%. However, we’ll be likely seeing rate cuts in October as well as December. Hopefully, those rate cuts will  boost… the residential market,” Mr. Golez said.

BSP Governor Eli M. Remolona, Jr. earlier signaled the Monetary Board could deliver two 25-basis-point (bp) rate cuts at each of its two remaining meetings this year.

LPC said rate cuts would help ease lending conditions for both developers and homebuyers, as well as encourage developers to launch new projects.

Muted demand may have prompted developers to defer new residential projects. New project launches plunged by 39% to 2,145 units in the quarter ending September, which LPC said was the lowest since the pandemic.

“What developers are most likely doing now is reselling or re-launching or reintroducing marketing programs for their current inventory,” Mr. Golez said, adding that lower interest rates may provide a lift to sales in the next few quarters.

However, LPC noted that property developers may still remain cautious about launching new projects.

“Headwinds due to external risks such as heightened geopolitical events and current global economic uncertainty may see a continued cautious approach by developers,” it said.

Another reason for lackluster demand for condominiums could be the change in preferences of homebuyers.

“It has become evident already in the last so many quarters, especially when you look at the loans taken from the banks. The percentage of loans taken for house allotments has been steadily increasing while those for condominiums have been declining,” Mr. Golez said.

He noted many homebuyers now prefer to live in townships outside of Metro Manila. Townships located south of Metro Manila have been growing, with the population in the Calaba (Cavite-Laguna-Batangas) projected to reach 12 million by the end of 2024 from only 7 million in 2005, he added.

“If you look at the provinces or at least in the Calaba area, along the expressways, you’re getting a bigger unit and you’re in a less dense (area), there’s less traffic (and) a better environment,” Mr. Golez said.

Tam Angel, director for investment sales at LPC, said developers are preferring to do more horizontal developments “because it has a shorter turnaround time for them for a return on their capital.”

As interest rates remained high, developers wanted to preserve their value sheets and their liquidity by shifting more to horizontal development.

“They were able to do that by, instead of building a condo in three, four, five years and having the big chunks of that return come in on the fifth year because we all know these savings are stretched out, they get a balloon payment on the last year,” Mr. Angel added.

He said horizontal development has a faster turnaround time of 18 to 24 months. — Aubrey Rose A. Inosante